If one of your health benefits is a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), you’re responsible for notifying employees about deadlines and rules. You have to give them a heads up about when the program starts, and go over how reimbursements work.
Below, we’ll explain how to notify employees, what to include, and when you need to do it to avoid penalties.
What is a QSEHRA notice?
A QSEHRA notice is a written explanation, sent via email or posted in your employee portal, of which QSEHRA plans your business offers and how they work. Under ERISA (the Employee Retirement Income Security Act), all health plan administrators have to provide plan participants with key notices and disclosures.
According to IRS guidance, every employer who offers a QSEHRA must provide each eligible employee a written notice at least 90 days before the QSEHRA program starts. Because most QSEHRAs begin on January 1st at the start of the calendar year, that makes the notification deadline in early October.
Employees who aren’t eligible at the beginning of the year must also receive the notice on or before the date they become eligible for the plan. New employees need to be notified as well. The notice requirement might seem like a small thing, but overlooking it could cost you $50 per employee, up to a total of $2,500 per year.
What’s in a QSEHRA notice?
The written notice you send your employees must include:
1. The reimbursement amount for the year
The reimbursement amount is the maximum dollar amount of reimbursements you will offer the employee for the year. This is also sometimes known as the “reimbursement allowance” or the “permitted benefit.”
Employer reimbursements may vary from employee to employee based on the age of covered individuals or the employee’s family size.
If that’s the case, you can either:
Create custom notices for each employee that state the employee’s specific reimbursement amount, or
You can use a general template that simply lists out all the reimbursement amounts according to employee age and family size.
When an employee becomes newly eligible during the plan year, the notice must include the date the QSEHRA is first provided to them. It also must include the prorated reimbursement amount for which the employee is eligible—or the information needed to calculate the prorated amount.
Not sure how to calculate the prorated reimbursement amount for your employee? It’s easy.
Let’s say your plan year starts on January 1 and you provide your single employees with an annual reimbursement amount of $4800. This means that the monthly reimbursement amount for a single employee is $400 per month ($4800/12 = $400).
Your employee George (who is single) joins your company and starts work on March 1; he is immediately eligible for QSEHRA, and his prorated annual reimbursement amount is $4000. (Because George didn’t work in January and February, the reimbursement amount for those months—$800—is subtracted from the annual amount).
(If you’re trying to work out how much you can afford to offer your employees, use this QSEHRA Budget Calculator to help you plan. To understand precisely how to use the QSEHRA Budget Calculator, read this.)
OK—back to your QSEHRA notice (sorry for the tangent, folks!). You’ve got to make a choice: either create a custom notice for each newly eligible employee or create a general template that works for every newly eligible employee.
2. Statement of duty to inform Health Insurance Marketplace
You must advise employees that if they apply to a Marketplace for advance payments on the premium tax credit (PTC) under the Affordable Care Act, they’re required to inform the Marketplace of the amount of the QSEHRA reimbursement amount.
The notice also should explain that the amount of the QSEHRA reimbursement amount may affect the employee’s eligibility for, and amount of, any PTC. It should instruct the employee to hold on to the notice in case they later need it to calculate the PTC on their individual income tax return.
3. Minimum essential coverage requirement
The notice must include a statement that, if the employee doesn’t have a health insurance plan that meets minimum essential coverage (MEC) requirements for any month, reimbursements made under the QSEHRA will be taxable. That means that the reimbursements will be included in the employee’s gross income and will be subject to payroll taxes and income taxes. The good news is: if the employee is covered by healthcare plans that meet MEC, reimbursements are free of these taxes.
According to IRS guidance, the notice should also state that an employee who doesn’t have MEC for any month could be liable for a penalty payment (this is known as an “individual shared responsibility penalty” or as the “individual mandate penalty”).
This is a little complicated, but we’ll get through it: in 2018, a law passed called the Tax Cuts and Jobs Act that eliminated those penalties; however, it’s still a requirement to include this messaging in the written QSEHRA notice. It’s also important to remember that certain states have their own individual mandates, so make sure you know the law in your state.
How should I send the QSEHRA notice?
You can provide the QSEHRA notice by mail or electronically (via email) as long as you satisfy IRS notice requirements. Among other things, that means:
The system you use to send the notice must be “reasonably designed” to provide the information in a way that’s at least as understandable to the employee as a written paper document.
The system must be designed to 1) alert the employee about the significance of the information in the notice, and 2) provide any instructions necessary to access the notice in a readily understandable way.
You also need to obtain the employee’s consent to receive the notice electronically. Check in with your employee and make sure that they are OK with you sending the notice via email.
When should I send the QSEHRA notice?
You need to send the QSEHRA notice at two key times:
90 days before the start of the plan year (for plans with a January 1st start date, the deadline is October 2) so employees can take advantage of the open enrollment period
On the first day a new employee becomes eligible if they were hired after the start of the plan year
QSEHRA Employee Notice Template
Below is a template you can use to provide the required QSEHRA notice to your employees. For more information, check out this IRS guidance.
Not sure how to fill out the template?
In the second paragraph, fill out the required four spaces as shown below:
For employees hired after the beginning of the plan year, you can use the same written notice as above, simply replacing the last sentence of the second paragraph with:
Download and fill out this template to properly notify your employees about QSEHRA:
Frequently Asked Questions
What is a QSEHRA?
A Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, is a type of HRA and employee benefit. Small businesses that don’t offer a group health plan can use a QSEHRA to reimburse employees for individual health insurance premiums, deductibles, Medicare costs, and other out-of-pocket health-related and medical costs.
What happens if an employer fails to provide a QSEHRA notice?
If you don’t provide a QSEHRA notice to your employees, you could receive a penalty of $50 for each employee, up to $2,500 a year.
Do former employees or terminated employees need to receive a QSEHRA notice?
No, former employees and terminated employees don’t need to receive a QSEHRA notice because they won’t be enrolled in the QSEHRA. A QSEHRA is only for existing employees who participate in the plan.
What are the annual IRS contribution limits for a QSEHRA?
The annual IRS contribution limits for a QSEHRA change every year. In 2026, the employee-only contribution maximum is $6,450 or $537.50 a month. The maximum for employees and households is $13,100 or $1,091.66 a month.
Can an employer amend a QSEHRA mid-year, and does that require a new notice?
Yes, employers can amend QSEHRA allowance amounts in the middle of the year, as long as they send an updated notice to employees explaining the details.
What recordkeeping requirements apply to QSEHRA notices?
The IRS recommends that you save records related to your QSEHRA for at least seven years. You should hold onto notices, proof of electronic notice delivery, proof of coverage, documentation of benefit amounts, written plan documents, W-2s, and any mid-year changes or updates.
More QSEHRA Resources:
